Recent data has confirmed a drop in Italy’s GDP. At the same time, it appears Italy is currently facing a recession.
Italy’s current impending recession follows a pattern is similar to that from 2008, 2011, and 2012. We are aware and used to Italy’s quite bad economic performance, however the country did display growth after the war. In the year 1987 Italy’s economy even surpassed the UK. However, its performance gradually declined. By 1999, when the Euro came onto the scene, Italy was already known as a weak economic performer on a global scale. The Euro made the situation even worse.
Italy has only grown 9% since then, while the UK has grown by 44%. There are different factors affecting Italy’s growth, including poor politics and unemployment.
Italy’s performance of the last 20 years has been quite poor, and the political system is a mess. Brussels has been calling the shots, and the Italian government has had no other option other than to follow their instructions. You have to keep in mind that Italy is one of the founding members of the EU and the Euro, and the public was totally supportive of EU integration. Recently, public opinion has turned against both the EU and Germany.
From 2015 to 2017 the Italian economy showed promise as well as some small signs of recovery including a decrease in unemployment. Today, the situation is quite different. Italy is dependent on the health of the global economy, with more than 30% of its economy based on exports. With the country’s economy slowing down, unemployment has increased by 10%. The government’s debt-to-GDP ratio is now at 132%, and experts do not foresee any improvements in the coming months of 2019.
Italy’s political situation has also changed. The Italian government believes it is capable of stronger growth and reducing the budget deficit. But financial experts disagree. The Italian government has blamed the global economy, and especially China, for its slow economic growth.
In the fourth quarter of 2018, net exports did increase Italy’s GDP. There is a possibility of decrease in unemployment in 2019, and the consumers are trying to save more instead of investing their money, as the public senses economic trouble ahead.
Bond markets show concern over the sustainability of Italy’s debt position and it’s EU membership. 10-year bond yields are at 2.6% above Germany’s bonds. If the Italian economy doesn’t improve in 2019, it could default, which may result in an Italian exit from the EU.
Italy’s economic situation could definitely hurt the other members of the EU as they may have to share its debt burden. This would be unstainable in the long term, and there is already strong support for Italy to leave the EU in such a scenario, so that it can recover more quickly.
